The income support system - BACKGROUND PAPER - Welfare Expert Advisory Group
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SOCIAL SECURITY IN NEW ZEALAND
The income support system
BACKGROUND PAPER
01THE INCOME SUPPORT SYSTEM
Contents
Summary 03
Frameworks for the welfare system 04
The iron triangle 04
The five levers 04
The tiers of assistance 05
The system of payments 07
General eligibility settings 07
Main benefits 09
Working for Families 17
Supplementary assistance 22
Hardship assistance 29
Obligations and Sanctions 33
Obligations 33
Sanctions 34
Financial incentives 35
Key concepts in financial incentives 35
Overall picture of income support 37
Example families 39
Key issues in the income support system 46
Recipients of income support 49
Recipients in the past five years 50
Key characteristics of working-age recipients of main benefits 53
Key characteristics of Working for Families recipients 54
Government spending 55
Further reading 57
02Summary
This paper provides a detailed introduction to the income support system in New Zealand, and is
focused on the system for working-age people.
First, three key frameworks are introduced that help to describe the key objectives and features
of the welfare system.
This is followed by a description of the income support system in New Zealand, starting with the
general eligibility requirements for income support payments in New Zealand. We then provide a
comprehensive overview of most income support payments that includes:
• specific eligibility requirements
• work obligations
• payment rates
• cut-out points1
• income and asset tests (abatement)
• indexation settings.
A description of the current obligations and sanctions regime follows.
We then describe some key concepts regarding financial incentives, including a description of
personal income tax rates, and show how income support (and income tax) fit together.
This description is then illustrated using four example families, and we show the impacts of
the income support (and income tax) system on the incomes of and incentives to work for
these families.
This is followed by a brief summary of some of the key issues in the income support system that
emerge from the description above.
We follow this with a summary of current recipient numbers and characteristics, and historical
trends in government spending on welfare.
This paper is designed to function as a useful reference document. However, the system is
highly complex with many interacting parts, and this paper is not comprehensive.
For further detail on income support payments, visit Work and Income’s Manuals and
Procedures (MAP) website:
https://www.workandincome.govt.New Zealand/map/index.html.
Many figures in this paper are based on the March 2018 benefit fact sheet: https://www.msd.
govt.New Zealand/about-msd-and-our-work/publications-resources/statistics/benefit/
archive-2018.html.
1 The point at which a person’s payment is reduced to zero because of their income or assets is known as the
‘cut-out point’.
03THE INCOME SUPPORT SYSTEM
Frameworks for the welfare
system
This section presents three frameworks commonly used in welfare system analysis:
• The iron triangle.
• The five levers.
• The tiers of assistance.
The iron triangle
The iron triangle illustrates some key trade-offs in welfare policy (i.e. welfare objectives that
are difficult to achieve at the same time). These trade-offs occur between three of the key
objectives of a welfare system:
• Improving adequacy/alleviating poverty.
• Improving or maintaining incentives to work.
• Sustainable cost to government.
The iron triangle highlights the difficulty of identifying welfare policies that achieve all three
of the objectives above. With any given policy change, it is generally possible to achieve two
of the three objectives at most. It is important to note that this framework takes a narrow and
short-term perspective on cost. There is a broader perspective that would consider the flow-on
impacts of changes in income support to other areas of government such as health, justice, tax
revenue and education. This broader and longer-term perspective can substantially change the
estimate of the overall cost to government.
Other key objectives that are not part of the iron triangle (because there is not the same
difficulty achieving them at the same time as others) include:
• improving the dignity and experience of people using the system
• supporting participation and inclusion in society
• supporting broader wellbeing, including the management of health conditions and
disabilities, and further education and training.
The five levers
Another useful framework is the ‘five levers of the welfare system’. This framework identifies the
key ‘levers’ that governments have to influence the welfare system. These levers are:
• gateways (e.g. eligibility settings)
• obligations and sanctions
• financial incentives
• case management
• services.
This paper discusses the first three levers above.
04It is important to note that there are different ways that governments can ‘use’ the levers.
Governments can change:
• legislation (which sets the ‘rules’ for most of the system)
• payment rates and settings
• policies (which may or may not require changes to legislation)
• ministerial oversight
• governance structures
• organisational form
• performance measures.
There has been some criticism of the five levers framework in that it misses many of the ‘soft’
levers that can be used to influence the welfare system. These include the varying levels of effort
that the system requires of people to gain and maintain entitlement, driven by the complexity
of forms, the channels to access the system, pre-benefit activities, the availability and ease of
access to information about entitlements and the way that settings are applied (i.e. more or less
aggressively) and people are treated.
This paper is also primarily focused on the policy settings of the system i.e. the framework of
rules that operates. We do not focus on the interpretation and administration of these settings,
or the experiences of the users of the system.
The tiers of assistance
First tier
The main working-age benefits in the New Zealand welfare system are based on a categorical
system, which identifies the main reason for a person being without full-time paid work. The
maximum rate of benefit varies according to the benefit type, the person’s age, and whether
the person is single, partnered or a sole parent. Main benefits are known as the first tier of
assistance. The key payments are:
• Jobseeker Support (JS), to support people who are unemployed and able to work, including
those with short-term inabilities to work (at all or full-time) due to health conditions
or disabilities
• Sole Parent Support (SPS), to support sole parents to care for children, and (once their
youngest child is three) to support them if they are unemployed
• Supported Living Payment (SLP), to support people who are severely restricted in their
capacity to work in the long term
• Youth Payment (YP), to support young people (16-17 years) without children, who are not
supported by their parents
• Young Parent Payment (YPP), to support young people (16-19 years) with children.
The rate of payment does not relate to the person’s previous income from employment; rather
it is intended to provide an income to meet the cost of living, within a context that includes the
availability of further income support, known as second- and third-tier assistance.
05THE INCOME SUPPORT SYSTEM
Second tier
Second tier assistance refers to additional assistance provided to people for specific ongoing
costs, such as accommodation, disability and the direct costs of children. The additional
assistance may be in the form of a subsidy rather than covering the additional costs completely.
Second-tier assistance is mostly income tested, and may be cash-asset tested. Second-tier
assistance is often also referred to as ‘supplementary’ assistance.
Examples of payments that are considered to be second-tier/supplementary assistance include:
• Accommodation Supplement
• Working for Families tax credits, such as the Family Tax Credit (FTC) and Best Start Tax
Credit (BSTC)
• Disability Allowance (DA)
• Childcare assistance (CCA)
• Winter Energy Payment (WEP).
Third tier
Third-tier assistance is tightly income and cash-asset tested. It is provided generally to people in
financial hardship, and is available only for costs considered ‘essential’; it is often also known as
‘hardship assistance’. Third-tier assistance includes both ongoing payments (such as Temporary
Additional Support [TAS]) and one-off payments (e.g. Special Needs Grants [SNGs]). Depending
on the nature of the cost, one-off payments can be either interest-free loans that must be
repaid, or non-recoverable grants.
06The system of payments
This section describes the different types of income support available in New Zealand across the
three tiers of assistance. It covers:
• general eligibility settings for income support payments
• first-tier - main benefits
• second-tier - Working for Families payments
• second-tier - supplementary assistance
• third-tier - hardship assistance.
This paper is focused on the income support system for people of working age. For comparative
purposes, brief information on the support for retired people (New Zealand Superannuation
[NZS]) is provided. NZS replaces main benefits for eligible people aged over 65. Superannuitants
may also be eligible for further support from second- and third-tier assistance.
This paper does not include descriptions of payments outside the welfare system, e.g. student
loans and allowances, payments and subsidies in the health and education systems, and ACC.
It also does not include many of the smaller payments (in the welfare system) for people in
particular circumstances, such as those with health conditions and/or disabilities or on low
incomes (some of which the Ministry of Social Development [MSD] administers on behalf of the
health system, including the Community Services Card).
General eligibility settings
While different types of payments in the income support system often have different
requirements, a set of general eligibility requirements applies to many of the payments.
These relate to:
• residency in New Zealand
• the nuclear family as the unit of assessment
• income tests and asset tests
• stand-down periods.
Residency in New Zealand
Generally, people must have continually lived in New Zealand for two years or more since
becoming New Zealand citizens or permanent residents (and be ordinarily resident in
New Zealand) to be eligible for most income support payments (this is one year for Working for
Families payments). There are exceptions for some groups such as refugees.2
Residency requirements for NZS are different and are described later in this paper.
Nuclear family as unit of assessment
The welfare system is assessed using the nuclear family. This means that adults are considered
as single or as a couple, and dependent children3 are included. For example, rates of payment
are generally determined by ‘family type’, with different rates for a single person, a couple, and
single people and couples with dependent children (sometimes varying with the number of
children, and sometimes not).
2 New Zealand also has reciprocal agreements with some other countries that allow for residence in these other countries
to be recognised as residence in New Zealand for benefit and pension purposes.
3 When this paper refers to people or families with children, it refers to dependent children. If it is referring to adult
children, this is stated.
07THE INCOME SUPPORT SYSTEM
Families with children are based on ‘dependency’ rather than biological status, with an adult
in a family being a principal caregiver of a child if they provide for the child’s day-to-day
needs and the child is financially dependent on them. This could include grandparents raising
grandchildren, for example.
Couples are defined as being married, in civil unions, or in de facto relationships. A de facto
relationship is defined as two people living together as a couple in a relationship in the
nature of marriage (or a civil union). Factors such as emotional commitment and financial
interdependence are also considered.
Any family members outside the nuclear family are generally not considered, even if they live in
the same household, for example adult children living with their parents or extended family in
the same house.
Income and asset tests (abatement)
Almost all income support in New Zealand is targeted on the basis of family income (and family
assets), with the family defined as the nuclear family (i.e. adults and any dependent children).
Income and asset tests are determined by a combination of the abatement settings of payments
(how fast they are reduced) and the rates of the benefit payments. Generally, the full rate of a
payment will be available to people earning up to a certain amount (known as the abatement
threshold). Above this amount, payments reduce (abate) as people’s incomes increase. There are
different ways that payments can reduce above the threshold. These are:
• gradually: for every dollar earned before tax, the payment is reduced by a portion of that e.g.
on JS, for every $1 earned over the abatement threshold of $80 a week, your net payment
drops by 70 cents – an abatement rate of 70%
• suddenly: above the income threshold you lose entitlement to the entire payment (a
‘cliff-face’), e.g. DA is only available to people earning less than $963.80 a week (for
a couple), or
• tiered: there are multiple abatement thresholds and when your income exceeds one of them
you lose a portion of your payment, e.g. CCA is paid at an hourly rate that reduces in four
tiers (multiple cliff-faces). If you have one child you receive a subsidy of $5.13 per hour if you
earn under $800 a week; this reduces to $4.09 if you earn between $800 and $1,200, then to
$2.86 if you earn between $1,200 and $1,300, then to $1.59 between $1,300 and $1,400, and
then $0 if you earn more than $1,400 a week.
There are pros and cons associated with each of these options.
Gradual abatement means that people are generally better off overall i.e. their increases in
income more than out-weigh the loss of their payments (if the abatement rate is not too high).
However, gradual abatement means that people’s payments need to change with every change
in income, including very small changes. This can be difficult for people whose incomes change
frequently, and who are required to update Work and Income constantly (which is costly to both
recipients and the administrators of the system). It also increases the chances of under- and
over-payments, and the risk of debt.
Sudden abatement means that people’s incomes can change below the threshold with no
impact on their payments. However, when people’s incomes exceed the threshold, even if only
by a small amount, they lose the entire value of the payments. This can mean that they are
worse off overall than they were before their earned incomes increased.
The pros and cons of tiered abatement are similar to those for sudden abatement, with the loss
of the payment occurring in more gradual ‘steps’ as income increases, rather than in one go.
As with sudden abatement, tiered abatement can result in people being worse off overall after
an increase in earned incomes, particularly if their incomes move to only just above one of
the thresholds.
08Asset tests are also used to determine eligibility for some forms of income support in
New Zealand, including some supplementary assistance and all hardship assistance. These tests
operate in the same way as the income tests described above, as they usually have a threshold
below which people are entitled to the full payment amount. Above this threshold people either
lose all entitlement (sudden abatement) or lose part of the payment (gradual abatement).
The point at which a person’s payment is reduced to zero because of their income or assets
is known as the ‘cut-out point’. Above this point people are no longer entitled to the income
support payment at all. The cut-out point can change due to changes in payment amounts,
abatement thresholds and/or abatement rates.
Some payments also have other ‘tests’ such as the In-Work Tax Credit. It has an ‘hours’ test that
means that a sole parent must work for at least 20 hours a week to receive it (and a couple must
work for at least 30 hours). This test also creates a ‘cliff-face’ of entitlement, with the entire
payment lost if hours of work do not meet these levels.
Stand-down periods
Most main benefits have initial stand-down periods (or ‘non-entitlement periods’) where
people cannot receive any main benefit payments – usually for one or two weeks depending
on their average weekly incomes in the 6 or 12 months before they applied, and the number of
dependent children they have.
The rationale for the stand-down is that people are expected to have sufficient savings to cover
a short gap in income. The stand-down period is based on average weekly wages, with those
earning under the average facing a one-week stand-down and those earning the average or
above facing a two-week stand-down.
The stand-down can be 13 weeks if a person voluntarily left their job without a good and
sufficient reason or was dismissed for misconduct.
Some people will not face a stand-down period; these include prisoners, refugees, and people
with chronic recurring illnesses, in residential care, transferring between benefits and in
temporary employment (if they have been employed for less than six months and they were on
a main benefit immediately before this employment).
Main benefits
The different main benefits reflect the different circumstances of people needing income
support. MSD administers main benefits. There are five main benefit types – these are:
• Jobseeker Support (JS)
• Sole Parent Support (SPS)
• Supported Living Payment (SLP)
• Youth Payment (YP), and Young Parent Payment (YPP)
• Emergency Benefit (EB)
• other.4
This section also briefly describes the settings for NZS, which are largely different from
main benefits.
4 This paper does not describe some of the less common main benefits such as the Emergency Maintenance Allowance
and Jobseeker Support Student Hardship.
09THE INCOME SUPPORT SYSTEM
Main benefits are all income tested, but are not asset tested. Main benefits are taxed and are
paid on a net basis. The ‘assessment period’ for main benefits is generally one week i.e. people’s
incomes (and other circumstances) are assessed on a weekly basis to determine their eligibility
for, and the payment rate of, main benefits. Recipients of SPS and SLP can choose to have
assessments of their annual incomes instead.
The payment rates of all main benefits are annually indexed (increased) to increases in the
consumers price index (CPI) (excluding cigarettes and tobacco).5 These increases occur on
1 April in most years6 as part of a process known as the Annual General Adjustment, based
on annual CPI growth to December the prior year. Adjustments using the CPI are assumed to
ensure that people can continue to purchase the same ‘basket of goods and services’ over time
i.e. they maintain the real value of payments.
The abatement thresholds for main benefits are not indexed.
There are currently (as at the end of March 2018) 273,387 working-age people receiving main
benefits. This represents 9.3% of the total working-age population. There are currently around
168,275 dependent children in families receiving main benefits.
Each of the main benefit types listed above is described briefly below.
While not usually classified as a main benefit, this section also briefly describes NZS.
Jobseeker Support
JS was previously (pre-2013) known as the Unemployment Benefit and the Sickness Benefit.
People are entitled to this benefit if they are unemployed and are seeking employment.
A person must be aged 18 years or over to receive JS.
JS recipients must re-apply for this benefit each year (every 52 weeks).
There are currently (as at the end of March 2018) 118,755 people receiving JS (43% of all
working-age main beneficiaries, 4% of the working-age population). Of these:
• 53% are ‘work-ready’
• 47% have health conditions or disabilities – with 48% of this group’s primary incapacities
classed as psychological or psychiatric conditions.
Work obligations
Work obligations can be full-time, part-time or deferred. Part-time and deferred work
obligations may apply due to health conditions or disabilities. A current medical certificate
must be provided to support an application for Jobseeker Support – Health Condition or
Disability (JS–HCD) and there is generally a requirement for a new medical certificate at least
every 13 weeks.
A sole parents whose youngest child is aged 14 years or over also receives JS and generally have
full-time work expectations (though the abatement of their payment is not the same as for other
JS recipients). More detail is provided in the section on SPS.
5 All future references to the CPI in this paper refer to the CPI (excluding cigarettes and tobacco).
6 If the CPI reduces (i.e. negative growth), payments are not adjusted.
10Payment rates and cut-out points
Table 1: Weekly (and annualised) payment rates, and income cut-out points, for
Jobseeker Support
Rate Net payment Gross payment Gross income
cut-out points
Single 18-19 years, at home $143.55 $160.39 $286
($7,465) ($8,340) ($14,872)
Single 18-24 years $179.44 $200.49 $337
($9,331) ($10,425) ($17,524)
Single 25+ years $215.34 $240.60 $388
($11,198) ($12,511) ($20,176)
Couple $358.88 $400.98 $593
($18,662) ($20,851) ($30,836)
Couple with children $384.50 $429.60 $630
($19,994) ($22,339) ($32,760)
Sole parent $334.05 $382.07 $635
($17,371) ($19,868) ($33,020)
In addition to being annually indexed to the CPI, net rates of JS for families with children
were increased by $25 a week on 1 April 2016, as part of the Child Material Hardship package
announced in Budget 2015.
Abatement
JS has an abatement threshold of $80 a week before tax (so earnings up to this point do not
reduce the payment rate). For every dollar earned above this, the net rate of JS reduces by 70
cents (a 70% abatement rate).
The abatement threshold encourages a small amount of paid work (equating to just under
five hours of work at the minimum wage7), and recognises that there are costs to work. The
relatively high abatement rate of 70% (before tax, over 80% after tax) is designed to discourage
part-time work and encourage full-time work.
The abatement threshold of $80 a week was last increased in 1996. As inflation and wages have
increased substantially since then, the abatement threshold has become relatively less generous.
This means that the income test for JS has become relatively more stringent over time.
Sole Parent Support
SPS was previously (pre-2013) known as the Domestic Purposes Benefit. A person is entitled to
this benefit if they do not have a partner and have at least one dependent child aged under 14
years. In the case of shared custody, only the parent with the greater parenting responsibilities
can be paid SPS.
SPS is only available to people aged 20 years and over.
SPS recipients must re-apply for this benefit each year (every 52 weeks).
7 Assuming a minimum wage of $16.50 an hour.
11THE INCOME SUPPORT SYSTEM
There are currently (as at the end of March 2018) 58,830 people receiving SPS (22% of all
working-age main beneficiaries, 2% of the working-age population). Of these:
• 92% are female (and 8% are male)
• 53% have a youngest dependent child under five years (with 47% having a youngest
dependent child aged between 5 and 13 years).
Work obligations
Work obligations are part-time with a youngest child between 3 and 13 years. For sole parents
with a youngest child under three, there are work-preparation obligations. However, if a
recipient has another child while receiving a main benefit, work-preparation obligations only
apply for the first 12 months of the child’s life. After that, the recipient’s work obligations are
based on the age of the next youngest child (the ‘subsequent child’ policy).
A sole parent whose youngest child is aged 14 years or over receives JS rather than SPS, though
the payment rates (and abatement settings) are the same as those of SPS.
Payment rates and cut-out points
Table 2: Weekly (and annualised) payment rate, and income cut-out point, for Sole
Parent Support
Rate Net payment Gross payment Gross income
cut-out points
Sole parent $334.05 $382.07 $635
($17,371) ($19,868) ($33,020)
In addition to being annually indexed to the CPI, the net rate of SPS was increased by $25 a
week on 1 April 2016, as part of the Child Material Hardship package announced in Budget 2015.
Abatement
SPS has an abatement threshold of $100 a week before tax (so earnings up to this point do not
reduce the payment rate). For every dollar earned above $100 and below $200 a week, the
net rate of SPS reduces by 30 cents (30% abatement rate). For every dollar earned over $200 a
week, net SPS reduces by 70 cents (70% abatement rate).
The abatement thresholds encourage a small amount of paid work (equating to around six
hours of work, and 12 hours of work, at the minimum wage8), and recognises that there are
costs to work. The relatively low abatement rate of 30% is designed to encourage part-time
work (combined with a personal earnings exemption of $20 a week for childcare costs).
The abatement threshold of $100 a week was last increased in 2010. However, since at least the
early 1990s the abatement threshold has not increased at the same pace as inflation or wages,
so has become relatively less generous over time. Again, this means that the income test for SPS
has become relatively more stringent over time.
8 Assuming a minimum wage of $16.50 an hour.
12Supported Living Payment
SLP was previously (pre-2013) known as the Invalid’s Benefit. People are entitled to this benefit
if they are both permanently and severely restricted in their capacity for work because of health
conditions, injuries or disabilities, or are totally blind. Permanent is defined as ‘expected to
continue for at least two years’. Severely is defined as ‘not being able to regularly work for 15
hours or more per week in open employment’. This is known as ‘the 15-hour rule’.
People can also be eligible for SLP if they are caring for people who require full-time care and
attention (other than their partners or spouses).9 This can include caring for a dependent child
who has a significant disability.
To receive SLP a person must be aged 16 years or older (if they are permanently and severely
restricted in their capacity to work), 18 years or older (as a carer and with no dependent
children) or 20 years or older (as a carer and with dependent children).
SLP is granted and re-assessed either:
• in two years, or
• never (if the recipient qualifies for simplified access to SLP e.g. due to their being totally blind,
being terminally ill with a life expectancy of less than two years, having a severe intellectual
or cognitive impairment or having a severe physical disability).
There are currently (as at the end of March 2018) 92,473 people receiving SLP (34% of all
working-age main beneficiaries, 3.1% of the working-age population). Of these:
• 91% are permanently and severely restricted in their capacity to work (with around a third of
this group’s primary incapacity classed as a psychological or psychiatric condition)
• 9% are carers.
Obligations
There are generally no work obligations for people receiving SLP, although some recipients
may have work-preparation obligations if they have been assessed as having the capacity to
prepare for work.
9 Note that while the carer is not entitled to SLP in their own right, if their partner is entitled to SLP the couple will be paid
the couple rate of SLP (and receive half the payment each).
13THE INCOME SUPPORT SYSTEM
Payment rates and cut-out points
Table 3: Weekly (and annualised) payment rates, and income cut-out points, for Supported
Living Payment
Rate Net payment Gross payment Gross income
cut-out points
Single 16-17 years $217.80 $243.35 $469
($11,326) ($12,654) ($24,351)
Single 18+ years $269.15 $303.40 $542
($13,996) ($15,777) ($28,166)
Couple $448.56 $501.18 $798
($23,325) ($26,061) ($41,494)
Couple with children $474.18 $529.82 $835
($24,657) ($27,551) ($43,397)
Sole parent $379.19 $436.78 $699
($19,718) ($22,713) ($36,340)
SLP is paid at a significantly higher rate than JS–HCD (by around $45 to $90 a week), to reflect
the permanent or longer-term nature of the health condition, injury or disability and its ongoing
costs. However, in practice, drawing a line between the eligibility for the two payments can be
challenging for both Work and Income staff and medical practitioners.
In addition to being annually indexed to the CPI, the net rate of SLP for families with children
was increased by $25 a week on 1 April 2016, as part of the Child Material Hardship package
announced in Budget 2015.
Abatement
SLP has the same abatement thresholds and rates as SPS. This reflects the ’15-hour rule’
associated with SLP and allows recipients to work a small amount without penalty (there is also
a $20-a-week personal earning exemption for income earned from personal effort).
The abatement thresholds were last increased in 2010. As inflation and wages have increased
substantially since then, the abatement threshold has become relatively less generous.
Youth Payment and Young Parent Payment
YP was previously (pre-2012) known as the Independent Youth Benefit. People are entitled to
this benefit if they are aged 16-17 years and are not supported by their parents.
YPP was introduced in 2012. People are entitled to this benefit if they are aged 16-19 years and
have dependent children, whether they are single or partnered. People may still be supported
by their parents if they are receiving this payment and are under 18; however, there is a parental
income test in this case.
All YP and YPP recipients are part of the Youth Service, which provides more intensive case
management and support.
There are currently (as at the end of March 2018) 3,080 people receiving YP and YPP.
14Obligations
Recipients of YP and YPP do not have work obligations – they have educational and budgeting
obligations i.e. they must be attending education or training, and attend a budgeting course.
Recipients of YPP also have parenting obligations i.e. they must attend a parenting course. The
educational obligations apply for YPP recipients from when their children are six months old (if
they are in a Teen Parent Unit) or 12 months old (if they are not).
Recipients of YP and YPP can also receive incentive payments where they meet these
obligations, paid at $10 a week for each payment.
Payment rates and cut-out points
The rates for YP and YPP are the same as for JS and SPS.
YP and YPP are annually indexed to the CPI, and the net rate of YPP was increased by $25 a
week on 1 April 2016, as part of the Child Material Hardship package announced in Budget 2015.
Abatement
YP and YPP have different abatement settings from the other main benefits, similar to the
Student Allowance, to reflect the absence of work obligations and the requirement to be
in education. There is an abatement threshold of $217.22 a week, allowing for a reasonable
amount of part-time work (around 13 hours at the minimum wage10). However, any earnings
above this point are abated at 100% ($1 for $1) until they earn $267.22 a week (singles) or $317.22
a week (couples), to discourage work above this level.
The abatement threshold is annually indexed to the CPI to maintain its real value, and to ensure
it aligns with the Student Allowance personal income threshold.
Emergency Benefit
EB is available to people in hardship and who are unable to earn enough income for themselves
and their families and cannot receive another benefit. EB is income and asset tested.
Reasons for hardship may include:
• a health condition, injury or disability
• their domestic circumstances
• their age (e.g. 16 or 17 years)
• any other reason (e.g. their residence status).
To be eligible, recipients must be 16 years or older and ordinarily resident in New Zealand.
There are currently (as at the end of March 2018) 907 people (of working-age) receiving EB and
a total of 4,419 people (of all ages) receiving EB.
Obligations
The obligations for EB are the same as those for the other main benefits. Recipients of EB are
assessed to find the ‘analogous benefit’ that applies to them (i.e. the main benefit type that most
closely suits their circumstances). The analogous benefit will determine their obligations e.g. if
the analogous benefit is JS the recipient is likely to have an obligation to seek work.
10 Assuming a minimum wage of $16.50 an hour.
15THE INCOME SUPPORT SYSTEM
Payment rates and cut-out points
EB is generally paid at the maximum rate of the analogous benefit, with the same income test.
Abatement
The abatement is also determined by the analogous benefit.
New Zealand Superannuation
NZS is a universal payment to citizens and permanent residents aged 65 years and over, subject
to their meeting residency requirements. The residency requirements are that they have been
resident in New Zealand for at least 10 years since the age of 20, five years of which must
be after the age of 50, and that they are ordinarily resident in New Zealand on the date of
the application.
NZS is indexed to the greater of growth in the CPI or the net (after tax) average wage (rather
than just the CPI as other main benefits are).11 In practice, this means that NZS keeps pace with
growth in net average wages over time.
There are currently (as at the end of March 2018) 755,364 people receiving NZS.12
There are generally no obligations for, or abatement of, NZS. However, NZS is abated if a
‘non-qualified partner’ is included in the benefit rate and/or if recipients have an overseas
pension that is deemed to be similar to NZS (and subject to the ‘direct deduction’ policy13).
Payment rates
Table 4: Weekly (and annualised) payment rates for New Zealand Superannuation
Rate Net payment14 Gross payment
Single, living alone $400.87 ($20,845) $463.04 ($24,078)
Single, sharing $370.03 ($19,242) $425.55 ($22,129)
Couple $616.72 ($32,069) $701.52 ($36,479)
As NZS is indexed to wage growth, and wages tend to grow faster than inflation over time, this
means that NZS payment rates have increased more than benefits, and there is now a substantial
gap between the payment rates.
11 As long as the married rate of NZS is between 66% and 72.5% of the net average wage.
12 This number also includes 7,750 people receiving Veteran’s Pension, which MSD also administers.
13 The Social Security Act (sections 187-191) sets the criteria that decide whether an overseas pension should affect a
recipient’s NZS (or other benefits). If an overseas pension meets this criteria, the recipient’s NZS is reduced by one dollar
for every one dollar received from this overseas pension – known as direct deduction.
14 Assuming tax rate ‘M’.
16Figure 1: Net payment rates of New Zealand Superannuation and selected main benefits as a
proportion of the net average wage, 1990-2018
100%
80%
70%
New Zealand Super
Married Couple
60%
50%
Jobseeker Support - Married
40% Couple with Children
Sole Parent Support
30% Supported Living Payment –
Single 18 years and over
Jobseeker Support
20% 25 years and Over
10%
0%
Apr-90
Apr-91
Apr-92
Apr-93
Apr-94
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jul-18
Note: the figure above only shows NZS and main benefit rates; it is not representative of the overall levels of support
that families would receive once supplementary (and hardship) assistance is taken into account.
Working for Families
Working for Families is a suite of payments provided to support families with the costs of
children. Inland Revenue (IR) administers Working for Families, although MSD administers some
of the payments, on IR’s behalf, for people receiving main benefits. The payments available are:
• Family Tax Credit (FTC)
• In-Work Tax Credit (IWTC)
• Minimum Family Tax Credit (MFTC)
• Parental Tax Credit (PTC) and Best Start Tax Credit (BSTC).
Working for Families payments are non-taxable, and are paid to the primary caregivers
of children. If children are in a shared-care arrangement, FTC and BSTC can be paid
proportionately to both parents (with a minimum amount of care required of one-third of the
child’s time).
The ‘assessment period’ for Working for Families payments is annual i.e. people’s incomes are
assessed on an annual basis to determine their eligibility for, and the payment rates of, Working
for Families payments. If people wish to receive their payments fortnightly, they need to
provide estimates of their annual incomes as the basis for these payments. These estimates are
re-assessed at the end of the tax year.
Some Working for Families payment rates are indexed to inflation, and some are not. These
settings are described under each payment below.
17THE INCOME SUPPORT SYSTEM
The abatement thresholds for Working for Families payments are not indexed. The abatement
threshold for FTC (and IWTC) was increased to $35,000 in 2006. This significantly increased the
eligibility for, and amount paid to, low- and middle-income working families. This threshold was
indexed to inflation and was increased to $36,827 in 2008. In Budget 2011 the next Government
began to reduce these abatement thresholds gradually (to a planned final amount of $35,000 a
year) to increase the targeting of these payments to lower-income families.
As part of the Families Package on 1 July 2018, the abatement threshold for FTC (and IWTC) will
increase to $42,700 a year (from the current amount of $36,350). The payments are abated in a
set order (one after the other), starting with FTC, then IWTC (and the previous PTC last).
BSTC has a separate abatement threshold of $79,000 a year, and is not indexed.
People must be over the age of 16 to receive Working for Families payments.
These payments are described in more detail below. More information on Working for
Families tax credits (by income) can be found here: http://www.ird.govt.New Zealand/
resources/9/7/97ef650f-e6ff-4d25-9930-4a3167aecd3c/ir271-may-2018.pdf
Family Tax Credit
FTC is an income-tested payment that goes to families with children, including those receiving
main benefits. People receiving main benefits can choose to receive their FTC through MSD
(along with their benefits and any other payments) or from IR.
It is not available to carers of children receiving Orphan’s Benefit (OB), Unsupported Child’s
Benefit (UCB) or Foster Care Allowance (FCA), for those children.
FTC was introduced as part of the introduction of Working for Families in Budget 2004,
replacing an existing payment (Family Assistance) and increasing eligibility for low- and
middle-income working families in particular.
In the 2016 tax year 297,900 families received FTC.
Payment rates and cut-out points
FTC will be increased as part of the Families Package on 1 July 2018 – the table below shows
the current and future weekly (annual) payment rates.
Table 5: Weekly (and annual) payment rates for Family Tax Credit
Eldest child
Age of child Current From 1 July 2018 Increase
0-15 years $92.73 ($4,822) +$20.31 ($1,056)
$113.04 ($5,878)
16-18 years $101.98 ($5,303) +$11.06 ($575)
Second or subsequent child
Age of child Current From 1 July 2018 Increase
0-12 years $64.44 ($3,351) +$26.81 ($1,394)
13-15 years $73.50 ($3,822) $91.25 ($4,745) +$17.75 ($923)
16-18 years $91.25 ($4,745) Nil
18Given that payment rates of FTC depend on the number of dependent children in a family (and
before 1 July 2018 also on the ages of the children), the cut-out points (the points at which
families earn too much to receive FTC) are different for different families. Some examples of
income cut-out points for FTC, for families with children under 12, are provided below (annual
gross [before tax] family income):
• Current rates:
– One child – around $58,000.
– Two children – around $72,000.
– Three children – around $87,000.
• From 1 July 2018:
– One child – around $66,000.
– Two children - around $85,000.
– Three children – around $104,000.
FTC is indexed to the CPI after cumulative changes in the CPI reach 5% (not annually). FTC was
last increased due to the CPI in 2012, and will be increased on 1 July 2018 as part of the Families
Package (this will ‘restart’ the calculation of the next inflation adjustment).
Abatement
FTC will be abated at 25% (25 cents in the dollar) on taxable family income over $42,700 a year
(gross, meaning before tax) from 1 July 2018. This abatement threshold is not indexed.
In-Work Tax Credit
IWTC is an income- and work-tested payment for families with children who do not receive
main benefits and who work a minimum number of hours a week (20 hours for sole parents and
30 hours for couples). The work-hours test is assessed on a week-by-week basis.
IWTC was introduced as part of Working for Families in Budget 2006, replacing an existing
payment (Child Tax Credit) and increasing financial assistance for low- and middle-income
working families in particular.
It is also available to carers of children receiving OB, UCB or FCA (who cannot receive FTC).
In the 2016 tax year 210,900 families received IWTC.
Payment rates and cut-out points
Table 6: Weekly (and annual) payment rates for In-Work Tax Credit
For families with 1-3 children For families with 4+ children
$72.50 ($3,770) +$15 per child ($780 per child)
19THE INCOME SUPPORT SYSTEM
Again, because the payment rates differ for different families, the cut-out points for IWTC
depend on the number of children and the rate of FTC. Some examples of cut-out points for
IWTC, for families with children under 12, are provided below:
• Current rates:
– One child – around $75,000.
– Two children – around $90,000.
– Three children – around $105,000.
• From 1 July 2018 (children under 12):
– One child - around $81,000.
– Two children - around $100,000.
– Three children – around $120,000.
The IWTC payment rate is not indexed to the CPI and was last increased (from $60 a week to
$72.50 a week) in Budget 2015 as part of the Child Material Hardship package.
Abatement
IWTC is abated at 25% (25 cents in the dollar) once FTC has been fully abated away (so above
the FTC income cut-out point).
Minimum Family Tax Credit
Minimum Family Tax Credit (MFTC) is an income- and work-tested payment for families with
children who do not receive main benefits and who work a minimum number of hours a week
(20 hours for sole parents and 30 hours for couples). It ‘tops up’ the incomes of low-income
families to ensure that they are better off in work than receiving main benefits.
MFTC was introduced in 1989, but was modified as part of the Working for Families reforms
of 2004-2006.
In the 2016 tax year 4,100 families received MFTC. Around 80% of MFTC recipients are
sole parents.
Payment rates, abatement and cut-out points
MFTC guarantees a net (after-tax) minimum income of $503 a week ($26,156 a year) – the gross
(before tax) figures are $587 and $30,508, respectively.
MFTC is designed differently from the other Working for Families payments as it is a guaranteed
minimum income tax credit. This means that it tops up a family’s income to a set amount. Once
a family’s income exceeds this amount, MFTC is longer paid. This means that it has an effective
abatement rate of 100%.
For example, a sole parent working 20 hours a week on the minimum wage ($16.50 per hour)
would be entitled to around $212 a week of MFTC. They would also be entitled to a further
$72.50 a week from IWTC (if they have between one and three children). The combination
of these payments means that they are better off than they would be if they remained on a
main benefit while working (as they would still be entitled to an abated [reduced] main benefit
payment working 20 hours on the minimum wage).
However, if they work more than 20 hours, their overall income will not increase as their MFTC
will decrease by $1 for each extra $1 of income earned from their job. They would not gain from
increasing their hours of work until they were working more than around 35 hours a week while
earning the minimum wage.
20The MFTC payment rate is not explicitly indexed, but the formula that calculates the payment
rate means that MFTC must maintain a certain gap between main benefits and work – this
means that it tends to increase as benefits are indexed to inflation. The MFTC payment rate
was also increased as part of the Families Package on 1 April 2018, to take account of WEP (and
ensure that families with children remained better off in work despite losing WEP when they
move off a main benefit).
Parental Tax Credit
PTC is an income-tested payment for 10 weeks after a newborn arrives, for families not
receiving main benefits or paid parental leave.
It is paid at $220 a week, and abated after both FTC and IWTC have fully abated (i.e. above the
cut-out point of IWTC).
PTC was introduced in 1999, before paid parental leave was introduced in 2001, and will cease
to exist for children born on or after 1 July 2018 as it is being replaced by BSTC as part of the
Families Package.
Best Start
BSTC is a universal payment to support families with children in the first year of children’s
lives. For the second and third years of children’s lives the payment is targeted to low- and
middle-income families. BSTC starts after any paid parental leave payments from IR, and is also
available to carers of children receiving OB, UCB or FCA.
People receiving main benefits can choose to receive their BSTC through MSD (along with their
benefits and any other payments) or from IR. All new recipients can also apply for BSTC through
the Government’s SmartStart online service for expecting and new parents.
BSTC will be introduced on 1 July 2018 as part of the Families Package.
BSTC will be received by the families of the around 60,000 to 65,000 babies born each year in
New Zealand (after 1 July 2018).
Payment rates and cut-out points
BSTC is $60 a week ($3,120 a year).
The cut-out point for BSTC depends on the number of children in a family aged between one
and two years. Two examples of cut-out points for BSTC, for families with children under three,
are provided below:
• One child between one and two years of age – around $93,000.
• Two children between one and two years of age – around $108,000.
The BSTC payment rate will have the same indexation settings as FTC (indexed after a
cumulative increase in the CPI of more than 5%).
Abatement
BSTC is only abated during the second and third years of a child’s life, and is abated at
21% above an annual gross taxable family income of $79,000. This abatement threshold
is not indexed.
21THE INCOME SUPPORT SYSTEM
Supplementary assistance
Supplementary assistance is designed to help low-income people to meet particular costs,
such as those of housing, childcare and heating, and those arising from health conditions or
disabilities. Almost all supplementary assistance is income tested, and some is also asset tested,
to ensure that it is targeted to people with few additional resources.
Supplementary assistance is non-taxable and available to both people receiving main benefits
and those working on low (and sometime middle) incomes.
This section covers most of the main supplementary assistance payments administered by
MSD15, including:
• housing assistance – Accommodation Supplement (AS) and Income-Related Rent
Subsidy (IRRS)
• childcare assistance (CCA) – Childcare Subsidy and Out of School Care and Recreation
(OSCAR) Subsidy
• Winter Energy Payment (WEP)
• Disability Assistance – the Disability Allowance (DA) and Child Disability Allowance (CDA), and
• Orphan’s Benefit (OB) and Unsupported Child’s Benefit (UCB).
These are described below.
Housing assistance
Accommodation Supplement
AS is an income- and asset-tested payment to help with the cost of housing. It is available to
both people receiving main benefits and those working on low and middle incomes, to help
with costs from the private housing market.
It is calculated as a partial contribution to families’ housing costs. A certain amount of housing
costs needing to be paid by families before the AS is available (known as the ‘entry threshold’).
Above the entry threshold housing costs are subsidised by the AS by 70 cents for every dollar of
housing costs (known as the 70% co-payment). This co-payment is available up to a maximum
amount of AS payment. Any further housing costs above the maximum amount need to be
met by families.
AS was introduced in 1993 (replacing the more limited Accommodation Benefit). It increased
substantially as part of the Working for Families changes in 2004-2006 and then again as part of
the Families Package from 1 April 2018.
There are currently (as at the end of March 2018) 279,283 people receiving AS. Of these:
• around 67% also receive main benefits
• around 14% also receive NZS or Veteran’s Pension
• around 19% are non-beneficiaries.
Of all main benefit recipients, around 66% also receive AS.
15 MSD administers a significant number of other supplementary payments such as Funeral Grants and House Modification
Funding. More information can be found on Work and Income’s Manuals and Procedures (MAP) website.
22Payment rates and cut-out points
AS payment rates depend on:
• where people live (with all of New Zealand split into four areas, with Area 1 containing the
places with the highest housing costs and Area 4 containing those places with the lowest
housing costs)16
• the family type
• the housing cost type – rent, mortgage or board17
• the benefit type
• the incomes and assets of recipients.
Table 7: Weekly entry thresholds and maximum payment rates for
Accommodation Supplement18
Family type Entry threshold - Entry threshold - Area 1 Area 2 Area 3 Area 4
rent mortgage max max max max
Single $54 $65 $165 $105 $80 $70
Couple $90 $108 $235 $155 $105 $80
Couple, 1+ $119 $143 $305 $220 $160 $120
child
Sole parent, 1 $107 $128 $235 $155 $105 $80
child
Sole parent, $107 $128 $305 $220 $160 $120
2+children
The maximum payment rates of AS are not indexed. The entry thresholds for AS are linked to
main benefit payments and FTC, so generally increase with inflation.
The maximum payments were last increased on 1 April 2018 as part of the Families Package,
and had not been increased for 12 years before this. The maximum payments reflect the 40th
percentile of rents in each AS Area. The previous increase reflected the median (50th percentile)
rent in each AS Area.
16 For example, Area 1 includes Auckland, Tauranga and Queenstown. Area 2 includes Hamilton, Wellington and
Christchurch. Area 3 includes most smaller centres in New Zealand, and Area 4 is mostly rural areas. Full lists are
available at: https://www.msd.govt.New Zealand/about-msd-and-our-work/newsroom/2017/budget-2017.html
17 It is assumed that 62% of board payments comprise rent, and AS is available for this portion of board costs.
18 These entry thresholds reflect the amounts for people receiving JS and SPS and for non-beneficiaries. The entry
thresholds for recipients of NZS and SLP are higher.
23THE INCOME SUPPORT SYSTEM
Table 8: Weekly (annual) income cut-out points for families receiving the maximum payment
rates for Accommodation Supplement
Family type Area 1 Area 2 Area 3 Area 4
Single $1,048 $808 $708 $668
($54,496) ($42,016) ($36,816) ($34,736)
Couple $1,553 $1,213 $1,013 $913
($79,716) ($63,076) ($52,676) ($47,476)
Couple, 1+ child $1,850 $1,510 $1,270 $1,110
($96,200) ($78,520) ($66,040) ($57,720)
Sole parent, $1,498 $1,178 $978 $878
1 child
($77,896) ($61,256) ($50,856) ($45,656)
Sole parent, $1,778 $1,438 $1,198 $1,038
2+children
($92,456) ($74,776) ($62,296) ($53,976)
Abatement
AS is abated at 25% (25 cents in the dollar) for income above a family’s relevant benefit cut-out
point. As benefits are indexed annually to inflation, the abatement threshold for AS rises with
inflation too.
AS is also abated for non-beneficiaries if their cash assets exceed a threshold. The full rate of AS
can be received if a single person has less than $2,700 in cash assets, or a couple has less than
$5,400 in cash assets. Above this, for every $100 of cash assets, they lose $1 per week of AS.
For both benefit recipients and non-beneficiaries, if a single person has more than $8,100 in
cash assets, or a couple has more than $16,200 in cash assets, they are not eligible for AS (cash
asset cut-out point). The cash asset limits were set in 1989, are not indexed, and have not been
increased since then.
Income-Related Rent Subsidy
IRRS is an income- and asset-tested subsidy available to people in public housing (which
includes properties provided by both Housing New Zealand and community housing providers).
The subsidy (paid to housing providers) means that these tenants pay an Income-Related
Rent, which limits the amount of rent they pay to generally no more than 25% of their net
(after-tax) income.
In practice, this means that families in public housing receive a significantly higher level of
support for their housing costs (through IRRS) than those in the private market (through AS).
IRRS was re-introduced in 2000.
There are currently (as at the end of March 2018) 63,970 families receiving IRRS.
Payment rates and cut-out points
The payment rates (and cut-out points) of IRRS depend on a family’s income and housing costs.
The rate of IRRS is calculated based on people’s housing costs and incomes, so while it is not
indexed, the payments naturally increase if costs do.
24Figure 2 illustrates the differences in support received (and therefore incomes after housing
costs have been taken out) between IRRS and AS for one family – a couple with two children
(under 12) - receiving JS, living in South Auckland and paying lower-quartile rent.
Figure 2: Difference in weekly income between Income-Related Rent Subsidy and
Accommodation Supplement for example family
Difference Between IRRS and AS for a JS Couple, two children, Area 1 (South Auckland), $470 rent
Difference in weekly income
$400
$350
$300
Accommodation Supplement Income-Related Rent Subsidy
$250
$200
$150
$100
$50
$0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80
Hours
The general picture in Figure 2 - of a significant gap while a family has no income from work
which gradually declines as the family earns more - generally holds for different family types
and locations. The graph is based on earnings at the minimum wage; if hourly earnings are
higher, the graph becomes more compressed (i.e. the gap between the payments declines more
quickly, and the crossover point, when AS becomes more generous than IRRS, happens at a
lower number of hours).
In this example, the difference in support results in a family, in the same circumstances,
receiving between $60 and $100 more a week in support if they are receiving IRRS compared to
AS and working up to 40 hours a week on the minimum wage.
Abatement
IRRS is abated at 50% (50 cents in the dollar) for income above the single or couple rate of NZS.
Since NZS payment rates increase annually with growth in the net average wage, so do IRRS
abatement thresholds.
IRRS is only available to people with cash assets below $42,700. This asset limit is based on
10% of the national median house sale price, but is not indexed and has not been updated
for some time.
25THE INCOME SUPPORT SYSTEM
Childcare assistance
CCA includes income-tested payments to help families to meet the costs of childcare. There are
two payments available:
• Childcare Subsidy: For families with children generally aged under five:
– Available for up to 50 hours a week for working families (excluding any hours where the
‘20 Hours ECE’ subsidy19 is available).
• Out of School Care and Recreation (OSCAR) subsidy: For families with children aged 5-13:
– Available for up to 20 hours a week (in the school term) and up to 50 hours a week
(during school holidays) for working families.
Both working families and those receiving main benefits are eligible for CCA.20 These subsidies
are paid directly to childcare providers, with families paying any residual amounts. Childcare
Subsidy cannot be paid for any hours already covered by the ’20 Hours ECE’ subsidy, which is
provided by the Ministry of Education for three to five-year olds.
CCA was increased substantially in the Working for Families changes in Budgets 2004-2006.
A higher rate of subsidy for low-income families was introduced as part of the Child Material
Hardship package in Budget 2015.
CCA is only able to be paid for the childcare costs of a primary caregiver, and is not able to be
split if a child is in a shared-care arrangement.
There are currently (as at the end of March 2018) 38,239 children being subsidised by CCA.
Payment rates, abatement and cut-out points
The hourly rate of subsidy for CCA is determined by the income of the family and the number of
children. There are four rates of subsidy.
Table 9: Hourly rates of subsidy of Childcare assistance
Number of Gross weekly income
children
1 Less than $800 $800 - $1,200 - $1,300 - $1,400 +
$1,199.99 $1,299.99 $1,399.99
2 Less than $920 $920 - $1,380 - $1,490 - $1,600 +
$1,379.99 $1,489.99 $1,599.99
3 Less than $1,030 - $1,540 - $1,670 - $1,800 +
$1,030 $1,539.99 $1,669.99 $1,799.99
Hourly rate $5.13 $4.09 $2.86 $1.59 $0
The hourly subsidy rates for CCA are indexed annually to the CPI, while the abatement
thresholds are not indexed.
19 The government subsidises all children who attend early childhood education (ECE). 20 Hours ECE is a higher funding
subsidy for children aged three, four or five years. This subsidy means that the cost of ECE can be fully subsidised for up
to six hours a days and up to 20 hours a week.
20 Families not working are currently entitled to up to nine hours of Childcare subsidy. Entitlement for working families is
based on their hours of work.
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